Unpaid Invoices and Other Credit Risks Keeping CFOs Up at Night

It’s not easy being a CFO, and it’s getting harder. In fact, three out of four CFOs expect their stress levels to increase in the near future. Unfortunately, unpaid invoices and other risk management issues are adding to the stress according to the findings of the Risky Business survey conducted on behalf of Euler Hermes.

This survey analyzed responses from U.S. CFOs and those in related jobs in companies with at least $5 million of annual revenues to understand their top concerns related to global political, economic and digital uncertainties heading into 2019.

Some of the key findings are summarized in our infographic below. You can also download the survey report to learn all the insights CFOs shared. 

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Credit Risk Concerns on the Road Ahead

More than one out of every two CFOs surveyed (58%) say they don’t feel fully prepared to handle the current financial risk landscape.

That’s not surprising, as financial leaders are facing a lot of obstacles that add up to a large uphill battle.

The most concerning problems for respondents were:

  • The need to grow the business
  • Unpredictable cash flow
  • Threats presented by competition
  • Regulatory changes
  • Data management

And when it comes to what’s still to come, 75% of CFOs surveyed said they are at least moderately concerned about the credit risks and other threats they might face in the next 12 months. This unsurprisingly aligns with economists’ expectations that a global financial slowdown on the horizon – a topic covered in depth by our own Dan North in his webinar, The U.S. Economy: Can Your Business Weather 2019?


Unpaid Invoices Are All Too Common

Do you assume when you perform a service or deliver a product as expected that you’ll similarly be paid as expected? Most do. But as noted above, cash flow unpredictability is one of the top concerns among the financial leaders that responded to the Euler Hermes commercial credit risk survey.

Unpaid invoices are all too commonplace. Within the last three years, CFOs have encountered an average of 17.2 non-payment events, and 72% of respondents have had to deal with at least one unpaid invoice during that same three year timeframe.

CFOs are right to be concerned. One out of five bankruptcies among small- and medium-sized businesses occurs due to customers that default on their invoice payments. While larger enterprises have better odds of surviving non-payment events, the decreased cash flow still has critical short- and long-term effects.

Check out our article, Effective Customer Credit Management Techniques, to learn the steps to take for credit risk mitigation.


Costly Consequences of a Conservative Credit Risk System

Given everything noted above, it’s easy to understand why some companies might re-evaluate relationships with buyers and take on a more conservative credit risk posture.

While that may be effective at reducing non-payment problems, it can also backfire.

Fifty-seven percent of respondents reported losing revenue as a result of restricting invoice payment terms to customers.

How much? There’s bad news there, too. On average, $1.4M in revenue was left on the table as a result of financial risk aversion. 
 

 

Wrapping up, the survey shows us a rock and a hard place.

On the one hand, CFOs are concerned about the current risk landscape in part because they’ve been burned by unpaid invoices and other issues in the past. However, it’s easy to overcompensate by creating invoice payment terms that create barriers for customers, costing the company revenue.

Financial leaders clearly need to find a balance that allows them to realize more potential revenue while managing credit risks.

This scenario often leads CFOs to evaluate credit risk solutions, like trade credit insurance, in an effort to empower their credit risk teams to avoid bad debts and unexpected losses without impeding growth… or keeping CFOs up at night.

 

 

Get the CFO perspective on credit risks

Nearly 75% of CFOs are at least moderately concerned about the risks they might face in the next 12 months. Read the Risky Business Survey report to learn more.

Download the survey report now